The virtual currency market has been on the rise since the beginning of 2023. (Photo illustration: Chesnot/Getty Images)
Cryptocurrency markets are off to a strong start this year, posting convincing gains as investors push digital assets higher despite industry headwinds.
Bitcoin, the world's largest digital currency by market capitalization, approached $24,000 last night and is up about 45% so far in 2023, according to CoinDesk statistics.
Earlier this month, a Goldman Sachs analysis found that identified This cryptocurrency is the best-performing asset so far this year.
Ether, the world's second-largest digital currency by market capitalization, hit more than $1,660 on January 21, up about 40% since the beginning of 2023, additional data from CoinDesk revealed.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
These impressive gains were also shared across the broader crypto market, which is up more than 35% since January 1, according to CoinMarketCap.
The turnaround comes a year after Bitcoin fell 65%, with the total digital currency market down around 66%, according to CoinDesk Research's 2022 Annual Crypto Review, CoinMarketCap statistics revealed.
Analysts have identified several potential causal variables that have driven the recent strength in the cryptocurrency market.
financial optimism
Monetary tightening was big news last year, with the US Federal Reserve raising its target range for the benchmark federal funds rate by 425 basis points since March.
However, some market participants expect the central bank to reduce the pace of rate hikes.
A CNBC article published earlier this month talks about this.
“Inflation is showing signs of subsidence in the U.S., leading some market participants to expect central banks to start easing the pace of rate hikes or even cutting them,” the article said. Ta.
If the Fed eases the pace of monetary tightening or lowers benchmark interest rates, it could benefit risk assets such as cryptocurrencies and stocks, and investors' expectations that this slowdown will materialize are certainly bullish. There is a possibility that it will happen.
Brett Shiffring, an investment advisor at Gerber Kawasaki Wealth and Investment Management, commented on these developments via email.
“The Fed is finally starting to show signs that it may slow or stop rate hikes by mid-year,” he said.
“This suspension of tight monetary policy may allow for increased liquidity and speculation by market participants, which bodes well for digital assets,” Schiffling added.
“There is even talk of a rate cut towards the end of the year, which could lead to further speculation in assets like Bitcoin.”
Independent crypto analyst Armando Aguilar also commented on the situation and provided commentary via email.
“Investor confidence played a role in the overall crypto market recovery, as investors believe the Fed can withdraw its restrictive monetary policy and give the market some breathing room.” There is no doubt about it.”
Tim Enneking, managing director at Digital Capital Management, provided another perspective on the matter and also provided input via email.
“Determining whether the CNBC article is accurate will actually focus on a different issue: whether the strong correlation between fiat markets will continue. If so, the article is correct. That’s going to happen,” he said.
“However, while the correlation remains high, it appears to be weakening in 2023. After all, the crypto market is significantly outperforming the fiat market in 2023,” Enneking said. It pointed out.
“Therefore, QT will certainly impact BTC price, but the impact will not be as large as last year and will likely continue to decrease,” he said.
“January effect”?
Earlier this month, a Bloomberg article questioned whether the so-called “January effect,” in which small-cap stocks outperformed established stocks at the beginning of the year, had anything to do with this month's rally in cryptocurrencies.
The article, written by Bloomberg senior editor Michael P. Regan, cites a newsletter written by investor Jeremy Grantham, co-founder and long-term investment strategist at asset management firm GMO.
“January is characterized by relatively strong personal characteristics. Institutions favor large capital and quality, and these characteristics are proven to outperform beta over the remaining 11 months. ” he said.
“Historically, however, individuals prefer small-cap stocks, clearly undervalued stocks, and, confusingly, stocks that were hit hard in the previous year,” Grantham added.
“I read about the recent 20% rally in Bitcoin and its friends, which is said to be due to strange reasons,” he wrote.
“To me, this is likely just the usual style of behaving like crypto's most speculative stocks, almost all of which have had terrible results in 2022.”
Andrew Rossow, an Internet lawyer and Web3 media advisor, seems to agree with this assessment and provided his thoughts via email.
“When it comes to the ‘January effect’, I think what we are seeing now is ‘on par’ with the traditional movements we have seen in speculative digital assets like Bitcoin. “It will continue to move the price up and down,'' he said.
However, Enneking expressed doubts about this particular explanation.
“January's impact is not a particularly good indicator,” he said.
“The originator of this theory (Sidney Wachtel) actually said that small-cap stocks outperformed large-cap stocks in the first half of January,” Enneking said.
“Since then, the term has generalized and become an even less accurate metric than it originally was.”
Bitcoin’s recent recovery
Enneking offered a different take on the issue, pointing to the recovery in the crypto market after bottoming out at the end of last year.
“As I noted on the Out on a Limb Podcast on November 15th, the FTX fiasco accelerated the capitulation of the crypto market and ‘forced’ a bottom at approximately $15.5 million.” he said.
“That's proven to be true. Even though we had a difficult December, January is just building on that and ushering in our annual optimism into the new year.”
Mr. Schiffling made a similar assessment of the situation.
“I think the crypto market has fallen quite a bit after the breakup of major players like FTX, Genesis, and BlockFi,” he said.
“After so much bad news, people may see this as an opportunity to buy on the spur of the moment and accumulate more digital assets.The correlation with the stock market remains high, and the stock market has also gained significant momentum this month. I am.”
Disclosure: I own some Bitcoin, Bitcoin Cash, Litecoin, Ether, EOS, and Sol.
